Comparison of 501(c)(3) and 501(c)(4) and 501(c)(6) Purposes Examples Tax Treatment Compiled from multiple publicly available web and printed resources** 501(c)(3) 501(c)(4) 501(c)(6) Membership: Social Welfare: Public: An organization must be organized Organizations that are associations of An organization must be organized as a non‐profit and operated and operated exclusively for an persons with a common business interest exempt purpose ‐ religious, charitable exclusively for the promotion of which promote the common interest and do scientific, testing for public safety, not conduct a regular trade or business for social welfare‐‐promoting the literary, educational purposes, profit common good and general welfare fostering amateur sports competition, of the people in the community or preventing cruelty to children or animals, etc. Primarily engaged in promoting the common good and general welfare of the people of the community – e.g., bringing about civic betterment and social improvements Civic leagues – e.g., Lions Club, social Chambers of commerce organizations, Churches, boys' and girls' clubs, welfare organizations, homeowners economic development corporations, real charitable hospitals, non‐profit estate boards, trade boards, professional & tenants' associations, veterans retirement homes or elderly homes, organizations such as the VFW, parent‐teacher associations … football leagues (NFL)… employee associations … Exempt from most federal taxes Exempt from most federal taxes Exempt from most federal income taxes Contributions are not tax‐deductible Contributions are not tax‐deductible Contributions are generally tax‐
deductible for the donor Contributions may be subject to Contributions are not subject to Membership dues may be deductible as federal gift tax federal gift tax business expense – however, org must track lobbying & political activity expenditures & Subject to Unrelated Business Income Not required to disclose its report annually to members perrcentage of Tax (UBIT) contributors membership dues that are nondeductible as a result of these expenditures 1 of 6 of 501c3‐4‐6 comparison‐sa.docx as of 6/16/2014 Barry Silverberg, Silverberg Associates – [email protected] – (512) 560‐9589 Tax Treatment (cont’d) Organizational Requirements Filing Requirements Assets Social Activity Subject to Unrelated Business Income Tax (UBIT) Must be a corporation, foundation or community chest, and follow all the state regulations pertaining to these types of organizations IRS 1023 Form IRS 990 (Return of Organization Exempt From Income Tax) Failure to file may result in fines up to $250,000 and revocation of tax exempt status Assets must be dedicated to charitable purposes No part of net earnings may benefit private individuals Social activities must be insubstantial Only has to be an organization that is not established for profits and only uses the funds for social welfare Contributions need not be disclosed Subject to Unrelated Business Income Tax (UBIT) No requirement (or less stringent) IRS 1024 Form IRS 990 (Return of Organization Exempt From Income Tax) Failure to file may result in fines up to $250,000 and revocation of tax exempt status No requirement to dedicate assets No part of net earnings may benefit private individuals IRS 1024 Form IRS 990 (Return of Organization Exempt From Income Tax) Failure to file may result in fines up to $250,000 and revocation of tax exempt status No requirement to dedicate assets No part of net earnings may benefit private individuals Social activity may be anything less than "primary" Social activity may be anything less than "primary" 2 of 6 of 501c3‐4‐6 comparison‐sa.docx as of 6/16/2014 Barry Silverberg, Silverberg Associates – [email protected] – (512) 560‐9589 Legislative/ Lobbying Activity Advocacy Political Activities Dissolution Bulk Mail Rate Public Charity 501(c)(3) 509(a)(1) ‐509 (a)(4) Lobbying cannot be a substantial part of its activities Limit expenditures to influence legislation, ballot measures, and judicial nominations, among others Legislative activity must be insubstantial, or <20% if 501 (h) expenditure test election made Prohibited from engaging in any partisan political activities, may conduct nonpartisan voter engagement activities May not established a PO for political activities Penalties: revocation of tax‐exempt status and excise taxes on both the organization and its managers Upon dissolution assets must be distributed for charitable purpose Eligible for low cost non‐profit bulk mailing permit “Not a private foundation”; normally receives a substantial part of its income, directly or indirectly, from the general public or from the government. Unlimited expenditures to influence legislation, ballot measures and judicial nominations, among others May inform the public on controversial subjects an attempt to influence legislation relevant to its program as long as primary activity is the promotion of social welfare May engage in limited political activities that inform, educate, and promote their given interest May not engage in direct expenditures advocating a vote for a political candidate or cause Contributors need not be disclosed May carry on partisan political activity subject to federal and state campaign‐finance laws May not be the “primary purpose” of the organization; must be secondary I have a job abilities political activities Tax on political expenditures Political activity permitted, but taxed Lobbying for a specific candidate prohibited Not applicable Not applicable Not eligible for lowest bulk mail rates Not an issue under (c)(4) Not eligible for lowest bulk mail rates Not an issue under (c)(6) 3 of 6 of 501c3‐4‐6 comparison‐sa.docx as of 6/16/2014 Barry Silverberg, Silverberg Associates – [email protected] – (512) 560‐9589 Public Charity (cont’d) Private Foundation/ Non‐operating foundation 501(c)(3) 509(a) – does not qualify as public charity Private Operating Foundation 501(c)(3) 4942(j)(3) Low Profit Limited Liability Company (L3C) Public support must be fairly broad; not limited to a few individuals or families. Receives most of its income from investments in endowments which is used to make grants to other organizations rather than being dispersed directly for charitable activities Private foundation that devotes most of its earnings assets directly to the conduct of its tax‐exempt purposes, rather than to making grants to other organizations for those purposes Not an issue under (c)(4) Not an issue under (c)(6) A limited liability company in some U.S. states that has statutory duties other than making a profit for owners. It may be formed for many purposes, such as to provide steady jobs to employees or to protect the environment. It is treated as a limited liability company for legal and tax purposes. It is not prohibited from making a profit, but it is subject to fewer regulatory requirements than a non‐
profit in the United States. (Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved) A company organized to perform services or engage in activities that benefit the public. Unlike a nonprofit, an L3C is operated like a regular profit‐making business and is allowed to make a profit as a secondary goal. A small but growing number of states ‐‐ including Illinois, Michigan, Utah, Vermont, and Wyoming ‐‐ have passed legislation allowing L3Cs. (Nolo's Plain‐English Law Dictionary) Benefit Corporation/ B Corporation Corporate form designed for for‐profit entities that wish to consider society and the environment in addition to profit in their decision making process. Benefit corporations differ from traditional corporations in regards to their purpose, accountability and transparency. The purpose of a benefit corporation includes creating general public benefit, which is defined as a material positive impact on society and the environment. A benefit corporation’s directors operate the business with the same authority as in a traditional corporation, but where in a traditional corporation shareholders with proper standing judge the company's financial performance, here they judge qualitative performance based on the benefit corporation's stated goals. Shareholders in a benefit corporation determine if the benefit corporation has achieved a material positive impact. (Wikipedia)
** This compilation of information has been prepared for conversational purposes and should not be relied upon or construed as legal or tax counsel. 4 of 6 of 501c3‐4‐6 comparison‐sa.docx as of 6/16/2014 Barry Silverberg, Silverberg Associates – [email protected] – (512) 560‐9589 NOTES 5 of 6 of 501c3‐4‐6 comparison‐sa.docx as of 6/16/2014 Barry Silverberg, Silverberg Associates – [email protected] – (512) 560‐9589 For further information or assistance in the process of obtaining an IRS 501(c)(3), 501 (c)(4) or 501(c)(6) determinations: Barry Silverberg Silverberg Associates “Exceeding Expectations” (512) 560‐9589 [email protected] 6 of 6 of 501c3‐4‐6 comparison‐sa.docx as of 6/16/2014 Barry Silverberg, Silverberg Associates – [email protected] – (512) 560‐9589